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UISG responds to potential loan rate hike

BY DEREK KELLISON | MARCH 21, 2012 6:30 AM

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University of Iowa students will soon join other Big Ten schools in an effort to maintain interest rate levels for Subsidized Stafford Loans.

Currently, interest rates on the loans are set at 3.4 percent by the College Cost Reduction Act of 2007 and the Higher Education Act of 1965. These rates are set to expire at the end of this year. If expired, rates would jump back to last year's rate — almost 7 percent.

Sara Harrington, an assistant director of UI Student Financial Aid, said the effect of the increased rates come from the unforeseen economic downturn.

"Before the rates were lowered in 2007, the economy was not as bad," she said. "No one expected the situation we have today."

If rates went back to nearly 7 percent, she said, that would mean students would pay nearly $280 per month in interest instead of the $137 per month that they currently pay.

The increased rates would take effect on all loans taken out on or after July 1, 2012 — with six-month grace periods still in place after graduation.

In February, President Obama released plans to revamp federal student aid, which would cap the Stafford Loan interest rate at 3.4 percent for an additional year.

UI Graduate College Dean John Keller said the effect of the Obama administration's plans would be beneficial for undergraduate students.

"There's just such an emphasis on undergraduate education with the current administration," he said. "They're employing different methods to give options for undergraduate aid to make it as accessible and affordable as possible."

UI Student Government President Elliot Higgins said he and other UISG members will attend the Big Ten on the Hill conference in Washington, D.C., collaborating with other student governments to lobby policymakers in April. This will be the organization's second lobbying event.

"The conference is important in keeping legislators' attention on student issues," Higgins said.

One of the conference's goals, he said, is to address the Stafford Loan rate hikes by extending current loan rates. Harrington said prior to 2007, students would face changing rates, which have now been stabilized to fixed rates. She said fixed rates are better for students, because they provide more predictability.

But letting the fixed rate jump back to a higher charge, UISG officials said, would have a costly effect on UI students.

Higgins said he thinks the rate hikes will unfairly affect low- and middle-income families.

"There's no question the rate hikes will have a negative effect," he said. "The Stafford Loan is given primarily to low- and middle-income families because it's a need-based loan, so the hikes will definitely be unfair."

However, the problem has a core issue that may be hard to solve even for lawmakers, Harrington said.

"Income is hard to predict, even five years ahead," she said. "Because of this, we can't tell ahead of time what effects rate changes in loans are going to have."

Despite this, Higgins said that lawmakers have to be pushed to extend the low rates because heightened rates would have frightening effects.

"Increasing the interest rate can have negative consequences," he said. "It may turn students away, and there's obviously going to be increased debt. We, as students, have to give positive reinforcement to encourage legislators to prevent this. We're trying to keep opportunities for student help open."

At a time with record borrowing rates, Harrington said, income has become a big factor in loan decisions for students.

"Students are borrowing more than ever," she said. "This is happening because rates are going, so payments are going up as well."


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